Google's YouTube Gambit

The search giant is doing more than just grabbing for online ad space with its big acquisition.

To make a long story short, for Google to be the primary search destination for video, it had to buy YouTube. How much is being the one-stop shop for search worth to Google?

If by buying YouTube, Google became the owner of most video searches on the web, did Yahoo! ( YHOO) and Microsoft ( MSFT) (who are trying to compete with Google in search) make a mistake by not buying YouTube? Time will tell.

Let me leave you with one more interesting thought: Google can easily monetize entertainment-oriented content that usually fetches lower price ads.

Since more people search for products and services on Google than any other place on this planet, Google owns the largest repository of so-called purchase-intent profiles in the world. Google could place an anonymous cookies on its visitors when they search and later deliver them relevant video ads on YouTube. For example, a person that searched for "car insurance" on Google could be shown a Geico TV ad the next time he visits YouTube, regardless of what he actually watches on YouTube.

This form of advertising is called behavioral targeting, and companies like mine and Advertising.com (acquired by Time Warner ( TWX) for $435 million in 2004) are deploying it in the marketplace. Google will leverage its valuable database of searches to convert YouTube's low-value ad space into targeted high-value video ad inventory.

So at the end of the day, the price Google paid might be justified not only strategically but monetarily.

Roy Shkedi, CEO and founder of Almondnet, has 14 years of experience in inventing, developing, and implementing interdisciplinary products as well as analyzing and investing in companies. Shkedi holds an MBA degree and an M.Sc. degree in electronic engineering; he received the most distinguished prize in the Israeli intelligence community for an R&D project. Prior to founding AlmondNet, Shkedi was the high technology analyst for Ofek Securities, Israel's largest portfolio manager.